Bank credit offer could help farmers save: Study

Business Reporter
FARMERS could increase their level of savings by at least 40 percent if banks availed credit to support their activities, a recent study into the savings behaviour of farmers has established.

The research found out that savings are influenced by availability of credit, supplementary income, age, interest on deposits, bank charges and level of education, which was consistent with empirical evidence.

Credit availability was found to be an important variable and second most critical factor in influencing the savings behaviour of farmers. The study says a $1 increase in credit would increase savings by $2,64.

“The farmer would actually save more than credit availed to him. Also if a farmer who ordinarily did not have a credit is availed with credit, he would improve on savings by 40,86 percent,” the study says.

The research was conducted by University of Zimbabwe Graduate School of Management student, DZ Manyumwa, supervised by Dr Gift Mugano.

The study was presented at research workshop organised by faculty last Friday, in its quest to facilitate academic excellence and relevant research that contributes to the recovery and growth of the economy.

It was empirically proven, from the study, that a 1 percent reduction on the bank charges would increase farmers’ savings by 3,24 percent.

Interest rates on the deposits were found to be the third most important variable. According to the research, a 1 percent increase on the deposit rates would encourage farmers to save by 2,30 percent.

“If the bank re-engages a farmer who did not save because of a perception that deposit rates were too low and his perception changes, he would increase savings by 30, 80,” the research noted.

It was established that an average farmer increases savings by 0,78 percent if he is much older and that a farmer with supplementary income saves 0,00252 percent more than a farmer without.

Further, it was established that the level of education of the farmer was the fourth important variable. “When a farmer improves education by one more unit for example from certificate to diploma, the likelihood of improving on savings improves by 1,66 times more.”

In addition, if an uneducated farmer became educated, there was likelihood of a 14,52 percent increase in savings, the research says. Contrary to economic theory, sex, type of farming and number of banks were found to be insignificant variables to savings behaviour of farmers.

“This was a surprise since most studies from literature cited in this study indicated sex as a major determinant of savings,” the study says.

The study says banks should be encouraged to source out cheap agricultural lines of credit backed by Government to fund the farmers.

A similar approach, the research says, has been encouraged in various institutional banks in their working papers European Central Bank.

To minimise the cost of bank loan to farmers, it was found that there is a need for proper management of the bank charges on credit facilities.

The bank charges proved to be most significant and with the greatest impact.